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Federal R eserve Bank O F DALLAS W ILL IA M H. WALLACE DALLAS, TEXAS 75222 FIRST VIC E PR ES ID EN T AND CH IEF O PER ATING O FFIC ER April 20, 1987 C ir c u la r 87-30 TO: The Chief Executive O fficer of a l l member banks, bank holding companies and others concerned in the Eleventh Federal Reserve D i s t r i c t SUBJECT Request for public comment on proposed amendment to Regulation T — Credit by Brokers and Dealers DETAILS The Board of Governors of the Federal Reserve System has requested public comment on a proposed amendment to Regulation T t h a t would r e v i s e the d e f i n i t i o n of "OTC margin bond". Comments should be addressed to Mr. William W. Wiles, S ec r e ta ry , Board of Governors of the Federal Reserve System, Washington, D.C. 20551. All correspondence should r e f e r to Docket No. R-0600 and must be received by May 26, 1987. ATTACHMENTS The Board's press r e l e a s e and the m aterial as published in the Federal R e g is ter are a ttach ed . MORE INFORMATION For f u r t h e r inform ation, p lease co n tact David Dixon of the Legal Department a t (214) 651-6228. S incerely y o urs, For additional copies of any circular please contact the Public Affairs Department at (214) 651-6289. Banks and others are encouraged to use the following incoming WATS numbers in contacting this Bank (800) 442-7140 (intrastate) and (800) 527-9200 (interstate). This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) April 16, 1987 For immediate r e l e a s e The Federal Reserve Board today issued f o r public comment a proposal t o amend i t s Regulation T--Margin Credit Extended by Brokers and D e a l e r s - - t h a t w ill r e v i s e th e d e f i n i t i o n of OTC margin bond. Comment i s requested by May 26. The proposed r e v is io n t o th e d e f i n i t i o n of OTC margin bond will permit brokers and de a le rs t o extend c r e d i t , on a good f a i t h b a s i s , on any m o rtg ag e-related s e c u r i t y . The Secondary Mortgage Market Enhancement Act of 1984 b a s i c a l l y r e q u ire s t h a t a m ortg age-related s e c u r i t y must be rated in one of th e two highest r a t i n g c a te g o r ie s by a t l e a s t one n a t i o n a l l y recognized s t a t i s t i c a l r a t i n g o r g a n iz a tio n . The s e c u r i t i e s must a l s o be secured e i t h e r d i r e c t l y or i n d i r e c t l y by r e s i d e n t i a l or mixed r e s i d e n t i a l / commercial mortgages. The proposed amendment t o th e r e g u la tio n should f a c i l i t a t e p r i v a t e s e c t o r p a r t i c i p a t i o n 1n th e secondary market f o r mortgages. I t should a l s o provide harmony with th e r ec en tly adopted measure of t h e S e c u r i t i e s and Exchange Commission regarding t h e New York Stock Exchange's maintenance margin rule. The re vised d e f i n i t i o n w ill encompass th e m ortg age-related s e c u r i t i e s t h a t have been p r i v a t e l y placed and t h e r e f o r e did not meet th e requirements in th e e x i s t i n g d e f i n i t i o n . The Board's n o t i c e 1s a tta c h e d . - Attachment 0- FEDERAL RESERVE SYSTEM 12 C.F.R. 220 Regulation T (Docket No. R-0600) Credit By Brokers and Dealers Mortgage Related Securities AGENCY: Board of Governors of the Federal Reserve System. ACTION: Proposed Rule. SUMMARY: The Board is proposing for public comment an amendment to Regulation T that will revise the definition of "OTC margin bond." The amended definition will include any "mortgage related security," a term defined in the Secondary Mortgage Market Enhancement Act of 1984 (SMMEA) and now found at Section 3(a)(41) of the Securities Exchange Act of 1934. DATE: Comments should be received on or before May 26, 1987. ADDRESS: Comments, which should refer to Docket No. R-0600, may be mailed to Mr. William W, Wiles, Secretary, Board of Governors of the Federal Reserve System, 20th Street & Constitution Avenue, N . W . , Washington, D. C. 20551, or delivered at the C Street Entrance between 8:45 a.m. and 5:15 p.m. weekdays to Room B-2223. Comments may be inspected in Room B-1122 between 8:45 a.m. and 5:15 p.m. weekdays. -2 - FOR FURTHER INFORMATION CONTACT: Laura Homer, Securities Credit Officer, Division of Banking Supervision and Regulation, (202) 452-2781; or Carolyn Davis, Economist, Division of Research and Statistics, (202) 452-3633. For the hearing impaired only. Telecommunications Service for the Deaf, Earnestine Hill or Dorothea Thompson, (202) 452-3544. SUPPLEMENTARY INFORMATION: In October of 1984 the SMMEA amended the securities acts and the acts governing depository institutions to provide preferential treatment for securities meeting a new legal definition, "mortgage-related securities." The amendments were designed to facilitate a liquid market in mortgage securities issued by non-governmental entities that would be competitive with the existing market in securities issued by United States government agencies such as GNMA and FNMA. The ultimate goal was to facilitate private sector participation in the secondary market for mortgages. A vast number of "mortgage related securities" are presently eligible for "good faith" loan value in a margin account because they come within the existing definition of an "OTC margin bond." However, an increasing number are privately placed and, therefore, do not meet the requirements in the existing definition that (1) OTC margin bonds be registered with the SEC, and (2) their issuers file current reports with the SEC. The SMMEA grants preferential treatment in a broad range of areas to any "mortgage related security" whether it is publicly offered or privately placed. This proposed amendment will permit similar margin treatment for securities sold either way. -3 - Regulatory Flexibility Act The Board believes there will be no significant economic impact on a substantial number of small entities if this proposal is adopted. Comments are invited on this statement. Paperwork Reduction Act No additional reporting requirements or modification to existing reporting requirements are proposed. List of Subjects in 12 C.F.R. Part 220 Banks, Banking, Brokers, Credit, Federal Reserve System, Margin, Margin Requirements, Investments, Reporting and recordkeeping requirements, Securities. For the reasons set out in this notice, and pursuant to the Board’s authority under sections 7 and 23 of the Securities Exchange Act of 1934,- as amended, (15 U.S.C. sections 78g and w) , the Board proposes to amend 12 C.F.R. Part 220 by adding new subsection 220.2(r)(3) as follows: 1. The authority citation for Part 220 continues to read as follows: Authority: 2. The 15 U.S.C. 78g and 78w. Board proposes to amend section 220.2(r) to read as follows: SECTION 220.2 — * Definitions * (r) "OTC margin bond" means: * * * * * * or (3) a "mortgage related security" as defined in Section 3(a)(41) of the act. By order of the Board of Governors of the Federal Reserve System, April 15, 1987. (signed) William W. Wiles William W. Wiles Secretary of the Board
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